Correlation Between Merck and Principal Exchange
Can any of the company-specific risk be diversified away by investing in both Merck and Principal Exchange at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Merck and Principal Exchange into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Principal Exchange Traded Funds, you can compare the effects of market volatilities on Merck and Principal Exchange and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Merck with a short position of Principal Exchange. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Principal Exchange.
Diversification Opportunities for Merck and Principal Exchange
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Principal is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Principal Exchange Traded Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Exchange and Merck is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Merck Company are associated (or correlated) with Principal Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Exchange has no effect on the direction of Merck i.e., Merck and Principal Exchange go up and down completely randomly.
Pair Corralation between Merck and Principal Exchange
Considering the 90-day investment horizon Merck Company is expected to under-perform the Principal Exchange. In addition to that, Merck is 10.68 times more volatile than Principal Exchange Traded Funds. It trades about -0.02 of its total potential returns per unit of risk. Principal Exchange Traded Funds is currently generating about 0.16 per unit of volatility. If you would invest 1,909 in Principal Exchange Traded Funds on September 1, 2024 and sell it today you would earn a total of 8.00 from holding Principal Exchange Traded Funds or generate 0.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Merck Company vs. Principal Exchange Traded Fund
Performance |
| Timeline |
| Merck Company |
| Principal Exchange |
Merck and Principal Exchange Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Principal Exchange
The main advantage of trading using opposite Merck and Principal Exchange positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Principal Exchange can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Principal Exchange will offset losses from the drop in Principal Exchange's long position.The idea behind Merck Company and Principal Exchange Traded Funds pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Principal Exchange vs. Principal Spectrum Preferred | Principal Exchange vs. AAM Low Duration | Principal Exchange vs. Global X Variable | Principal Exchange vs. PGIM Active High |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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